- The Mexican Peso extends its recovery, taking advantage of the weakness of the Dollar.
- Mexico’s GDP growth is in line with expectations and could dissuade Banxico authorities from relaxing their monetary policy.
- Mixed economic data from the US, with an improvement in business activity but a downturn in the manufacturing PMI, weighed on the USD/MXN pair.
The Mexican Peso (MXN) extends its gains against a weaker US Dollar (USD), as North American traders return from Thanksgiving for a shortened session, although they failed to boost the latter. Treasury yields in the United States (US) rose while the chances of interest rate cuts by the US Federal Reserve (Fed) were delayed. For its part, the Mexican economy grew as expected, which was a headwind for the USD/MXN, which is trading with losses of more than 0.50%.
The National Institute of Statistics (INEGI) revealed that the Gross Domestic Product (GDP) rose as expected in annual terms and exceeded 90-day forecasts. This could prevent Bank of Mexico (Banxico) officials from adopting a dovish stance, after minutes showed that economic policymakers estimated a rate cut in the first quarter of 2024.
In the United States, business activity showed signs of continuing to improve, according to S&P Global’s composite and services PMI. The exception was manufacturing, which fell into recession territory.
Daily movements: The Mexican peso, favored by solid economic growth and a firm disinflation process
- Mexico’s GDP growth in the third quarter was 3.3% year-on-year, as expected, exceeding the previous reading. The quarterly basis increased by 1.1%, exceeding forecasts and previous figures of 0.9% and 0.8%, respectively.
- Mexico’s Consumer Price Index (CPI) for mid-November rose 4.32% year-over-year, exceeding estimates of 4.31%.
- The S&P Global Composite and Services PMI for the US came in at 50.8, beating estimates, and 50.7, above forecasts, unchanged from the previous report.
- Manufacturing activity revealed by S&P Global, witnessed the index fall from 50 to 49.4, below estimates of 49.8.
- Mexico’s core CPI slowed down compared to the previous data and stood at 5.31%, below the forecasts of 5.33%.
- A Citibanamex survey suggests that 25 of the 32 economists surveyed expect Banxico’s first rate cut in the first half of 2024.
- The survey shows “a great dispersion” for interest rates next year, between 8.0% and 10.25%, Citibanamex revealed.
- The same survey revealed that economists forecast annual headline inflation of 4% and underlying inflation of 4.06%, both for next year, while the USD/MXN exchange rate is at 19.00, from 18.95, towards the end of 2024.
- Data released last week showed a drop in prices paid by consumers and producers in the US, adding to investor speculation that the Fed’s tightening cycle is over.
- The swaps market suggests traders expect 84 basis points of rate cuts from the Fed in 2024.
Technical Analysis: The Mexican Peso in the driver’s seat, while the USD/MXN threatens to close the week below 17.10
The USD/MXN pair was undermined by encouraging economic data, which pushed the pair below the 17.10 level, hitting a three-day low at 17.08. The bias remains bearish, and the pair could extend its losses if it breaks the November 21 low at 17.06. If it leaves this level, it could test 17.00 points.
On the other hand, if buyers reclaim 17.20, this could facilitate a jump to the 100-day SMA at 17.34. Once buyers reclaim that resistance zone, further rises towards the 20-day SMA at 17.46 could be seen.
Frequently Asked Questions about the Mexican Peso
What is MXN?
The Mexican Peso is the legal tender of Mexico. The MXN is the most traded currency in Latin America and the third most traded on the American continent. The Mexican Peso is the first currency in the world to use the $ sign, prior to the later use of the Dollar. The Mexican Peso or MXN is divided into 100 cents.
What is Banxico and how does it influence the MXN?
Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its priority objective is to preserve its value over time. In addition, the Bank of Mexico manages the country’s international reserves, acts as a lender of last resort to the banks and advises the government economically and financially. Banxico uses the tools and techniques of monetary policy to meet its objective.
How does inflation impact the MXN?
When inflation is high, the value of the Mexican Peso (MXN) tends to decrease. This implies an increase in the cost of living for Mexicans that affects their ability to invest and save. At a general level, inflation affects the Mexican economy because Mexico imports a significant amount of final consumption products, such as gas, fuel, food, clothing, etc., and a large amount of production inputs. On the other hand, the higher the inflation and debt, the less attractive the country is for investors.
How does the Dollar influence the Mexican Peso (MXN)?
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
How does the Fed’s monetary policy affect Mexico?
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
